Mard, CPA/ABV, ASA, is a managing director of The Financial Valuation Group (FVG) in Tampa, Florida. Hyden, CPA/ABV, ASA, is a managing director of The Financial Valuation Group in Tampa, Florida. This book, Valuation for Financial Reporting: Fair Value Measurements and Reporting, Intangible Assets, Goodwill, and Impairment, includes a USPAP-compliant PowerPoint format of the report example presented in Chapter 4.
OBJECTIVES OF FINANCIAL REPORTING AND THE CURRENT ENVIRONMENT
1, Financial Reporting Objectives by Business Enterprises, published by the Financial Accounting Standards Board (FASB) in 1978. Financial reporting objectives are influenced by the economic, legal, political and social environment. The boards' discussions of the objectives for the financial reporting and decisions taken to date are based on this overall objective.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 157, FAIR VALUE MEASUREMENTS
157 defines market participants for the purpose of measuring fair value.12 They are buyers and sellers in the most advantageous market for the asset or liability. For determining the fair value measurement, the cost method is based on the current replacement cost – the amount that would be required on the measurement date to replace the service capacity of the asset. The fair value of restricted stock must be determined based on whether market participants would consider the effect of the restriction.
ACADEMIC RESEARCH ON THE RELEVANCE OF FAIR VALUE ACCOUNTING
Barth's study concluded that the use of fair values to measure financial instruments appeared to be important to investors in evaluating bank stocks. The Barth study concluded that the use of fair values to measure gains and losses on financial instruments does not appear to be relevant to investors in evaluating bank stocks. The Ahmed/Takeda study found that gains and losses on securities using fair values have incremental explanatory power over historical costs.
ENDNOTES
Exit Price The price that would be received to sell the asset or paid to transfer the liability. Principal market The market in which the reporting entity will sell the asset or transfer the liability with the greatest volume and level or activity for the asset or liability. Inputs that reflect the reporting entity's own assumptions about the assumptions market participants would use to price the asset or liability developed based on the best information available in the circumstances.
SFAS NO. 141, BUSINESS COMBINATIONS
The cost of asset contributions (cash flow) is based on the fair value of the asset contributions. The asset or liability will be taken into account in determining the fair value of the reporting unit.52. Goodwill impairment exists when the carrying amount of the reporting unit, including goodwill, exceeds the fair value of the reporting unit.
SCOPE
DEFINITION OF A BUSINESS COMBINATION
DEFINITION OF A BUSINESS
MEASURING THE FAIR VALUE OF THE ACQUIREE
MEASURING AND RECOGNIZING THE ASSETS ACQUIRED AND THE LIABILITIES ASSUMED
Statement 141 permitted deferral of recognition of pre-acquisition conditions until the recognition criteria of Statement 5 were met, and subsequent changes were recognized as adjustments to goodwill. 146, Accounting for costs associated with resignation or disposal activities, from the time of takeover to be recognized as assumed liabilities. This proposed statement would require the acquirer in business combinations where the acquirer owns less than 100 percent of the equity interests of the acquiree on the acquisition date to recognize the identifiable assets and liabilities at the full amount of their fair value, with limited exceptions. and goodwill as the difference between the fair value of the acquired business as a whole and the fair value of the acquired identifiable assets and assumed liabilities.
This interpretation stated that when a company acquires another company in a series of purchases, the company must identify the cost of each investment, the fair value of the underlying assets acquired and goodwill for each incremental acquisition. Statement 141 did not provide guidance for measuring the minority interests' share of the consolidated subsidiary's assets and liabilities at the time of takeover. Acquisitions of additional non-controlling equity interests after the business combination will not be able to be treated under the takeover method.
The acquirer should recognize, separately from goodwill, the fair value of the research and development assets acquired in the business combination on the acquisition date. The acquirer should account for any changes in the amount of its deferred tax assets that are recognized (by increasing or decreasing the acquirer's allowance for its pre-existing deferred tax assets) as a result of the business combination separately from that business combination. This Statement would amend Statement 109 to require that such changes in the amount of deferred tax benefits be recognized either in income from continuing operations during the period of the combination or directly in invested capital, as the case may be.
Statement 109 would have required that a reduction in the acquirer's impairment resulting from a business combination be recognized through a corresponding reduction in goodwill or certain non-current assets or an increase in negative goodwill.
BENEFITS AND COSTS
This Statement supersedes Explanation 4, which required that research and development assets acquired in a business combination that have no other possibility of future use be measured at fair value and accounted for as an expense at the date of acquisition. Consistency in accounting procedures can also reduce the cost of preparing financial statements, especially for entities with global operations. In addition, such consistency will also increase the comparability of information between entities, which can lead to a better understanding of the resulting financial information and reduce the costs for users of the analysis of this information.
ISSUANCE
CASE STUDY 1: DETERMINING THE VALUE OF GOODWILL AND OTHER INTANGIBLE ASSETS
The value of a company is equal to the value of the total invested capital of that company. Applying the WACC to previously estimated cash flows reflects the fair value of the Target's invested capital at the measurement date (Figure 3.5). The depreciation benefit is part of the fair value of all intangible assets that are tax deductible.
The amortization benefit is essentially the present value of the tax savings resulting from depreciating the asset. Based on our analysis as presented in Exhibit 3.8, we concluded that the total fair value of the trade name at the valuation date was rounded). The contributing asset tax is ''the product of the asset's fair value and the required rate of return on the asset.''16.
It is important to note that the assumed fair value of the contributing asset is not necessarily static over time. Based on our analysis, we concluded that the fair value of the acquired technology was rounded at the valuation dates, as shown in Figure 3.11. With a discount rate of 17%, the sum of the present values of the cash flows is equal.
For financial reporting purposes, included in the goodwill value is the fair value of the combined workforce of $1,790,000.
CASE STUDY 2: IMPAIRMENT UNDER SFAS NO. 142
We suspect that impairment exists; now the challenge is to determine the fair value of the reporting entity per the current date, December 31, 2007. In our example, the carrying amount of the reporting unit exceeds its fair value, triggering step two. As described in Case Study 1, the fair value of the assets of the reporting entity one year ago was determined to be.
142 requires that the fair value of all the assets of the reporting entity be determined as of December 31, 2007. Based on our analysis as presented in Exhibit 3.20, we concluded that the aggregate fair value of the trade name at the valuation date was. 144 states that the sum of the undiscounted cash flows (here for five years, ignoring the residual value) exceeds the book value.
Based on our analysis, we concluded that the fair value of the technology purchased at the valuation date was rounded), as shown in statement 3.23. Based on our analysis, we concluded that the fair value of the customer base at the valuation date was rounded), as shown in Exhibit 3.25. 141 requires the distribution of the fair value of the acquired assets at the cost of the acquired economic entity.
197 tax depreciation of intangible assets is calculated based on the fair value of the enterprise defined here.
BUSINESS VALUATION REPORTING STANDARDS 1
Second, the standards address not only what must be included in the valuation report, but also what areas the valuer must consider when forming an opinion. The common thread of every organization's reporting standards is that certain elements must be reported in a clear, accurate and non-misleading manner. At first glance, the process of comparing different corporate valuation reporting standards seems fairly straightforward.
Therefore, it is the responsibility of each valuation practitioner to familiarize themselves with those reporting standards promulgated by their respective organization and not to rely exclusively on Exhibit 4.2, which includes our interpretation. Both the opinion and the rating must meet its 'minimum reporting criteria'. Other evaluation services, such as litigation support or calculations, are not subject to the reporting standards, as well as the development standards. The essential difference between these options (Evaluation Report vs. Limited Use Evaluation Report) is in the content and level of information provided.''3 A Limited Use Evaluation Report must ``state an obvious limitation of use that limits use of the report to the client and warns that the appraiser's opinion and conclusions presented in the report may not be properly understood without additional information on the appraiser's work.''4 Also, many of the differences in the two written reports lie in the written form of the evaluators of one of them "summary". '' the contents of his or her report in the case of an Assessment Report, or 'stating' the contents in the Limited Use Assessment Report.
The ASA usually has only one written report, the Comprehensive Written Business Valuation Report, whose reporting standards are at BSV-III. Of the five organizations—NACVA, ASA, IBA, AICPA, and IRS—the ASA is the only one that requires that all valuation engagements of its members also comply with USPAP, Exhibit 4.1 Permissible Valuation/Appraisal Reports. The reporting standards allow three types of written reports - detailed, summary and calculation - which are included in Exhibit 4.2.
It is the only standards set that has developed reporting standards for a calculation-only business.
SAMPLE INTANGIBLE ASSET VALUATION REPORT LANGUAGE AND EXAMPLE 1 6
In the valuation of intangible assets, elements of the income approach and the market approach are sometimes used simultaneously. We obtained the fair values of the identifiable assets acquired in the acquisition of Target. Tax amortization of total intangible asset value is based on Section 197 of the Internal Revenue Code.
The remaining ongoing growth rate is 5%, based on discussions with management and an industry analysis. Interview costs are based on the employee's grade and the typical number of hours to interview each replacement employee. We relied on the revenue projections used in determining the enterprise value of the company's business and as provided by management.
A pre-tax royalty rate of 2% was established based on discussions with management and an analysis of The Financial Valuation Group's proprietary database. The present value of the non-compete agreement was reduced by the probability that the seller would not compete. We discounted the remaining residual cash flow to its present value based on the asset's discount rate.
We discounted the remaining cash flow to its present value based on the discount rate of the asset.
